Let’s discuss lowering the rebalancing threshold to make the bnUSD peg tighter. For some background, the original threshold was 0.5%. During the first market crash post-balanced launch, the community saw the effects of this and it was causing a lot of chaos. We changed the threshold to 5% in order to stop it from happening while we worked on enhancements.
We have now made considerable improvements. Now, on average, all borrowers will be rebalanced the same amount on a percentage basis and each rebalance transaction is only a maximum of 0.05% of your debt.
There is also no arbitrage for outside traders anymore, all price difference benefits go to borrowers. If the peg is broken at 8% premium, borrowers have their collateral sold (or buy sICX) at an 8% premium.
Although it sometimes doesn’t feel like it, rebalancing is similar to taking part in a process that automatically takes advantage of market miss-pricing / arbitrage for the users. Rebalancing sells at a premium and buys at a discount on behalf of borrowers. Additionally, please see this thread on twitter detailing how to use the sICX/bnUSD pool to counteract the effects of rebalancing.
I propose that we lower the threshold to 3.5%, with the intention of continued tightening as we see the effects in practice. Here are some reasons to tighten the peg:
Better stablecoin utility
- The most obvious reason - we need bnUSD to actually be pegged to 1 USD for people to use it as a stablecoin
- A potential ~10% shift in value (0.95 up to 1.05) of a stablecoin isn’t acceptable for users that expect to be holding a stablecoin
Better trade execution
- Right now, people trying to buy sICX on Balanced often won’t do it because the price is too high (bnUSD peg is below $1). This is missed volume and missed revenue for the DAO
- The idea of bnUSD is to always be able to trade it for $1 of an asset. Currently, that’s not the case because of the loose rebalancing threshold.
Inclusion in OMM
- We need bnUSD to be more stable if users of OMM are going to be able to reliably use it as collateral and/or borrow it. Imagine you think you have a stablecoin as collateral, then bnUSD price crashes 10% and liquidation becomes a fear.